Question

National Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $65; white, $95; and blue, $120. The per unit variable costs to manufacture and sell these products are red, $50; white, $70; and blue, $90. Their sales mix is reflected in a ratio of 2:2:1 (red:white:blue). Annual fixed costs shared by all three products are $160,000. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $7; white, by $17; and blue, by $7. However, the new material requires new equipment, which will increase annual fixed costs by $30,000.

Required:
1.	Assume if the company continues to use the old material, determine its break-even point in both sales units and sales dollars of each individual product. (Round up your composite units to whole number. Omit the "$" sign in your response.)

Break-Even Points	Sales Units	Sales Dollars
Red at break-even		$
White at break-even		$
Blue at break-even		$

2.	Assume if the company uses the new material, determine its new break-even point in both sales units and sales dollars of each individual product. (Round up your composite units to whole number. Omit the "$" sign in your response.)

Break-Even Points	Sales Units	Sales Dollars
Red at break-even		$
White at break-even		$
Blue at break-even		$

Answer 1

1)		Red	White	Blue
	Sales price per unit	$                 65.00	$                 95.00	$          120.00
	Variable cost per unit	$                 50.00	$                 70.00	$             90.00
	CM per unit	$                 15.00	$                 25.00	$             30.00
	Sales mix ratio	2	2	1
	Weighted average CM = (15*2+25*2+30)/5 =	$                 22.00
	BEP in composite units = 160000/22 =	7273
	Break-Even Points	Sales Units	Sales Dollars
	Red at break-even	2909	$       1,89,085
	White at break-even	2909	$       2,76,355
	Blue at break-even	1455	$       1,74,600
	Total	7273	$           6,40,040
2)		Red	White	Blue
	Sales price per unit	$                 65.00	$                 95.00	$          120.00
	Variable cost per unit	$                 43.00	$                 53.00	$             83.00
	CM per unit	$                 22.00	$                 42.00	$             37.00
	Sales mix ratio	2	2	1
	Weighted average CM = (22*2+42*2+37)/5 =	$                 33.00
	BEP in composite units = 190000/33 =	5758
	Break-Even Points	Sales Units	Sales Dollars
	Red at break-even	2303	$       1,49,695
	White at break-even	2303	$       2,18,785
	Blue at break-even	1152	$       1,38,240
	Total	5758	$           5,06,720